SET Portfolio Update February 2014

February 4, 2014

Wow!!!

After months and months of low volatility trading for US stocks, a good old fashioned market correction feels foreign.  One thing’s for sure, volatility has returned with a vengeance.

Yesterday’s losses were the largest single day move for the Dow Jones Industrial Average since June of last year.  The large cap index is now down more than 6.7% from the peak.

Here’s the thing…

As crazy and unnerving as big down days are for investors, they’re not the end of the world.  They’re a normal part of investing.

There are those that believe this selloff is because the Fed has begun to withdraw their monetary stimulus.  And I’m sure it played a role.  But I think it’s more psychological than anything.

A combination of factors has sent investor sentiment spiraling downward.  In fact, investor sentiment has quickly swung from its highest level in months to the lowest level in months.

At this point, many traders have pulled the plug on short to medium term trades and are waiting for an opportunity to buy back in at lower levels.

The good news is the vast majority of the correction is over.  I don’t see the S&P 500 falling below the 200-day moving average.  In other words, a peak to trough correction of about 7.6%.

But in the end, this correction, like all of them before it, will end up being a good buying opportunity.

Now, onto the updates…

. . . . First Trust Global Auto Index (CARZ) – Sell

Our entry into CARZ was clearly poorly timed.  But I had a tight stop loss of $38.00 just in case something like this happened.  The stop loss is our cue to cut CARZ loose.

. . . . Guggenheim Solar (TAN) – Hold

TAN has been on a volatile run higher.  And the selloff over the last week has done nothing to change that.  The uptrend is still firmly in place. Continue holding.

. . . . First Trust Consumer Staples AlphaDEX Fund (FXG) – Buy up to $36.00

FXG has pulled back to support of the 200-day moving average.  This solid level of support should trigger a bounce in FXG in the day ahead.  If you haven’t already, you can buy FXG up to $36.

. . . . PowerShares Dynamic Leisure and Entertainment (PEJ) – Hold

PEJ, like so many other consumer related ETFs, has dropped quickly in the selloff.  Here’s the thing… the stocks that had the biggest gains are being hit the hardest in the correction.  I think PEJ will snap back quickly. Continue holding.

. . . . PowerShares Dynamic Media Portfolio (PBS) – Hold

PBS is another ETF that’s had a strong correction.  But we’re still well above where we recommended buying it.  Media stocks have been in a solid uptrend over the last year. This correction hasn’t changed that.  Continue holding.

. . . . iShares Transportation ETF (IYT) – Hold

IYT’s correction falls into the same vein as many of our ETFs.  The rallies were overextended to the upside.  And the correction has pushed IYT back near support of the upward trending price channel.  There’s nothing to fear here.  Continue holding…

. . . . First Trust Global Wind Energy (FAN) – Hold

FAN, like TAN, our other alternative energy ETF, has been very volatile over the last few months.  But the fact is, they’re still in a solid uptrend… even after the market correction. FAN will be volatile and continue moving higher.  Continue holding…

. . . . First Trust NASDAQ ABA Community Bank Index Fund (QABA) – Hold

QABA has taken a big hit over the last few weeks.  But even after the correction, we still have a solid gain.  The momentum has faded from community banks but they should bounce back quickly from this setback.  Continue holding…

. . . . Guggenheim S&P 500 Equal Weight Technology ETF (RYT) – Hold

RYT came close to our $80.00 price target before the correction.  And it’s holding up extremely well during it.  Tech stocks should be one of the first to bounce back from the latest market selloff.  Continue holding.

. . . . Health Care Select Sector SPDR (XLV) – Hold

XLV has taken a step back but it’s only down about 4% from the peak.  If there’s one area of the market I want to be invested in right now, it’s health care.  Don’t panic… continue holding XLV.

. . . . Morgan Stanly Cushing MLP High Income Index ETN (MLPY) – Hold

MLPY has largely ignored the market selloff.  And that’s what it’s supposed to do.  Continue holding.

. . . . iShares DJ US Home Construction Index Fund (ITB) – Hold

ITB has proven to be rather resilient.  Investors clearly see the drop in interest rates that have accompanied the stock market selloff as a positive for homebuilders.  Continue holding.

Action To Take

• Sell First Trust Global Auto Index (CARZ)

 

Category: SET Portfolio Updates